Randy Shumway: Positive lessons from free trade with Mexico

Mexico's President Enrique Pena Nieto, left, and Panama's President Ricardo Martinelli shakes hands after signing a Free Trade Agreement between both countries during the last day of the World Economic Forum on Latin America in Panama City, Thursday, April 3, 2014.

Taking a cue from Mexico’s success, the U.S. can improve its economy by emphasizing free trade — particularly with the European Union.

Editor's note: This column was previously published in a newsletter produced by Zions Bank.

Over the last four decades, the United States experienced its largest-ever immigration surge as over 12 million workers and families from Mexico crossed the border northward in search of a brighter future. While the U.S. has welcomed vast waves of global immigrants over the course of its history, our country accommodates more immigrants from Mexico than from any other country, according to the Pew Research Center.

In recent years, however, this tide of immigration from Mexico has been slowing — even reversing to a degree. While the financial crisis in the U.S. was undoubtedly a cause for decreased immigration, expanding economic opportunity in Mexico has played a large part in retaining its workforce.

Simply put, Mexico’s growing economy and rising standard of living reduces the incentive for workers and their families to go elsewhere for greater opportunity. A major element of Mexico’s recent economic growth is its increased emphasis on free trade.

Mexico’s economy changed trajectory in the late 1980s, when leaders from Mexico, Canada and the U.S. negotiated a trade agreement designed to increase trade among the countries by removing duties attached to imports.

In 1994, the North American Free Trade Agreement inaugurated the largest free-trade region in the world, bearing an immediate and enormous impact on Mexico’s economy. Prior to NAFTA, Mexico’s exports peaked around $30 billion. However, within the first year of free trade, Mexico’s exports reached $70 billion. This number has grown upwards of 500 percent to $387 billion in the 20 years since NAFTA’s advent — more than doubling Mexico’s GDP during the same period.

In spite of free trade’s positive effects on economic growth, critics claim that trade partnerships are one-sided — that, in this case, Mexico’s gain is America’s pain. However, U.S. export figures tell a different story.

For example, last year Mexico imported 14 percent of all U.S. exports. Putting that figure into perspective, Mexico buys more U.S. goods than do Brazil, Russia, India and China combined; or more than France, Germany, the Netherlands and the United Kingdom combined. As far as free trade goes, this powerful rising tide lifts all boats.

Taking a cue from Mexico’s success, the U.S. can improve its economy by emphasizing free trade — particularly with the European Union. If our leaders come to consensus on the Transatlantic Trade and Investment Partnership with the EU, the U.S. will be able to compete on equal footing in some of the largest economies in the world. One study from the Centre for Economic Policy Research in London concluded that a comprehensive transatlantic trade and investment agreement has the potential to add $122 billion annually to the American economy and $150 billion annually to the European economy.

Many sectors in the United States would be bolstered through free trade with the European Union, not least of which is agriculture. Last year, less than 7 percent of the United States’ $145 billion in total agricultural exports were imported by the European Union — the economy that accounts for nearly 20 percent of all global trade. From this perspective, opening free trade with the EU could greatly bolster our agricultural industry, thereby revitalizing our rural areas and increasing our number of export-based jobs.

In promoting free trade to strengthen our economy, we must also consider its impact on immigration because the two issues are interrelated on American soil.

In the 20 years of free trade between the U.S. and Mexico, immigration has fallen from a rate of nearly 500,000 per year to 140,000 per year. Because free trade helps curb the flight of labor from one economy to another, we must encourage leaders to make improvements to immigration policies while simultaneously expanding and promoting free trade agreements.

These efforts will ensure labor is properly allocated within our markets and will continue to boost economic growth in the United States.

Randy Shumway is the CEO of the Cicero Group and is the economic adviser to Zions Bank.